Germany’s weak hand in car emissions dispute

Germany spent decades successfully running interference in Brussels for its vital car industry, but that became a lot more difficult after the Volkswagen emissions testing scandal.

In a sign of the shifting political landscape, the German industry appeared resigned Wednesday to a European Commission proposal that seeks to recalibrate the balance of power between Europe’s regulators and the Continent’s powerful automakers. The plan would overhaul the car approval process by strengthening government oversight and levying big fines for violators.

Before U.S. regulators discovered last year that Volkswagen had installed cheating devices in 11 million vehicles, Berlin’s growl was enough to get the EU to quickly back away from measures that could affect German industry.

Only two years ago, German Chancellor Angela Merkel managed to block a deal on new carbon dioxide emissions limits, forcing the EU to give up on stricter caps. And she did it with a last-minute intervention, “something I can’t remember I’ve ever seen before,” one of the European Parliament’s negotiators said at the time.

The deal had already been struck in a trilogue between the European Commission, Parliament and Council. All that was left was for ambassadors to formally adopt it. Then the night before, Merkel reportedly put in a call to Irish Prime Minister Enda Kenny, whose country held the Council presidency, to remove it from the agenda. It worked. The topic was postponed to autumn, and the rules were eventually weakened.

Now the Volkswagen “dieselgate” scandal has seemingly turned the dynamic back in the Commission’s favor, highlighting the weaknesses in the European car regulation system — especially compared to the United States, where the German carmaker got caught.

An important reason for the tension here is the sheer size of the car industry. It accounts for a fifth of Germany’s industrial revenue and employs 775,000. It’s also a dominant economic presence in countries from France to Slovakia. That’s why Germany and others worry that the Commission’s regulatory zeal could damage the sector.

Ever attuned to the politics surrounding cars, the Commission says it’s also aware of the danger of overreach.

“I was very clear from very beginning. I didn’t want, and I don’t want now, a new European institution,” said Elżbieta Bieńkowska, the internal market and industry commissioner.

Still, the Commission’s proposal is expected to set off a showdown between the European Council, where national governments are likely to resist the move to dilute their authority, and the European Parliament, where most MEPs have rallied behind the plan to give Brussels more power.

“This is not new, it has been made out before, but now the car industry needs to get serious about making changes,” Jyrki Katainen, the Commission’s vice president for jobs, growth, investment and competitiveness, said of the Volkswagen case in a press conference on Wednesday.

Although it’s impossible to guarantee there won’t be any breaches, Katainen warned: “If there is a person who is capable of circumventing the requirements or capable of cheating the new proposals, the person must really be a pathological case.”

While the Commission stresses the need to create a level and competitive playing field across the EU’s single market, the bloc’s biggest car manufacturing countries like Germany, France and Italy worry the rules would deliver a major blow to their economies and jobs.

The new regime

The proposal, which has gained momentum since Volkswagen admitted in September to installing cheating devices, is aimed at making three underlying changes.

First, it wants to revamp the way that new car models are approved by breaking the financial link between carmakers and testing labs. It also weakens national approval agencies by subjecting them to peer reviews from similar agencies in other EU countries.

Second, it aims to have both national agencies and the Commission carry out spot checks on cars already in the market. Cars that fall short could be recalled by either the Commission or by national authorities — another expansion of EU powers that encroaches on national sovereignty.

Third, it allows the Commission to impose financial penalties on testing centers and manufacturers. Carmakers could face a penalty of up to €30,000 per car — in line with the U.S. system — if national governments fail to act.

The Commission was quick to reassure countries that it isn’t engaged in a power grab. But there is no denying that if the proposal is accepted, then the Commission will have a lot more authority over Europe’s heterogenous approval system.

Wednesday’s proposal is just the first step. The Commission plans to make other suggestions later this year, including to extend the new road-testing system from just nitrogen oxides to other air pollutants, Katainen said.

The Commission was already in the process of changing the regime for regulating and monitoring car emissions before Volkswagen got caught. But in light of the scandal, “it was very obvious the European Commission must have supervising powers,” said Bieńkowska. “We will have a good tight system for checking the cars.”

Now Brussels will have to justify its need for those new powers.

“I fear that the EU has looked to the USA’s federal-level Environmental Protection Agency and said, ‘I want one of those,'” said Daniel Dalton, an MEP from Britain’s Conservative Party, which tends to look askance at EU ambitions. “They need to get out of the mentality that if there are failings in a system then only more centralization and interference is the answer.”